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Does corporate environmental protection increase or decrease shareholder value? The case of environmental investments
Author(s) -
Halme Minna,
Niskanen Jyrki
Publication year - 2001
Publication title -
business strategy and the environment
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.123
H-Index - 105
eISSN - 1099-0836
pISSN - 0964-4733
DOI - 10.1002/bse.290
Subject(s) - goodwill , tobin's q , shareholder , share price , economics , institutional investor , event study , market value added , value (mathematics) , market value , stock market , porter hypothesis , enterprise value , business , monetary economics , financial economics , finance , corporate governance , natural resource economics , environmental policy , stock exchange , biology , paleontology , context (archaeology) , horse , machine learning , computer science
This study examines share price effects of environmental investments using data from the Finnish forest industry from 1970 to 1996. The results indicate that the instantaneous market reaction is negative, and that the larger the investment, the larger the fall in prices. However, contrary to the view that corporate actions have a permanent effect on firm value, we observe rapid price recovery after the instantaneous negative reaction. This may support a hypothesis that environmental investments create goodwill for the investing firms and are thus not negative net present value investments. Unexpectedly, we find that the instantaneous negative market reaction was stronger in the most recent sample years. Explanations for this finding relate to the slowness of institutional change within the financial community as well as to the growing share of international investors seeking short‐term holding gains. In conclusion, it appears that not only finance theory but also notions from institutional theory and corporate environmental management literature are needed to explain stock price behaviour in conjunction with environmental investments. Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment